Retail Sales and the Elusive Internet Shopping Industry

American consumers will have spent about $460 billion
this past holiday shopping season, according to the Purdue Retail Institute.
To put this figure into perspective, that is a little more than the nation
of Liberia's gross domestic product. If you want a perspective
a little closer to home, that figure is inching close to the gross state
product of Illinois.

Traditional in-store sales still dominate the retail industry, despite
all the media attention to holiday shopping on the Internet. The Purdue
Retail Institute estimates that “Internet sales will climb to $26
billion, up from $21 billion last year (a 22 percent increase). While
a 22 percent increase is notable, Internet sales still account for only
10 percent of holiday sales.” Again, to put this figure of $26
billion into perspective, that amount is close to Indiana's budget
for the last two years.

A private research firm, comScore Networks, forecasted similar fourth
quarter Internet sales ($26.5 billion) and predicts that online spending
for 2005 will be around $83 billion—a 24 percent increase over
2004.

The most recent Census Bureau data for the nation on e-commerce comes
from the Monthly Retail Trade Survey and is for the third quarter of
2005. Going into the holiday season, there were $962.7 billion in retail
sales, and e-commerce sales comprised 2.2 percent of total sales. Gradually,
e‑commerce sales have taken a larger piece of the pie thanks to
annual growths rates that are three times in-store retailers (see Table
1).

Table 1: Estimated Quarterly U.S. Retail Sales: Total and E-Commerce*
Not Adjusted

Although the material is dated, we can get fairly detailed information
on shopping via the Internet using the 2002 Economic Census. In 2002,
5,498 businesses with paid employees generated $24 billion in Internet
sales, excluding electronic auctions, which is now close to the amount
that is generated by online shopping on a quarterly basis.

Note that businesses with a combination of in-store sales and Internet
sales are not included. For example, goods sold online at Sam's
Club, Best Buy and car dealerships would be excluded.

Table 2 shows the nation's top five product lines by Internet sales.
Computer hardware, software and supplies comprised almost 16 percent
of Internet sales in the nation. In addition, there were 95 electronic
auctions like eBay, which posted $903 million in sales. Since 1997, there
are 5,920 more electronic shopping and mail-order businesses with an
additional $52 billion in sales or a 75 percent increase.

Table 2: Top 5 Product Lines in the U.S. by Electronic Shopping (Internet
Sales), 2002

E-commerce in Indiana

While U.S. retailers generated over $3 trillion in sales in 2002, Indiana
retailers generated $67 billion. In Indiana and the United States, 26
percent of retailers' revenue comes from motor vehicle and parts
dealers, and anyone who has had to purchase a car or take one in for
repairs lately knows the truth in that. In Indiana, general merchandise
store sales (department stores, warehouse clubs, super-centers and the
like) comprise 17 percent of total sales and beat out food and beverage
store sales, which assumes the second place for the nation.

So we know the magnitude of the retail trade industry, but is it possible
to measure e-commerce within the state?

In 2002, Indiana had 92 establishments with paid employees engaged in
retailing merchandise using the Internet and one electronic auction business.
On a broader scope, in 2003, 1,082 businesses with no paid employees
had $24 million in sales in the mail order and electronic shopping industry
group. That is a gain of about 200 businesses.

Figure 1 shows volatility in nonstore retailers' growth in both
Indiana and the nation over the past fifteen years. However, where the
United States has averaged a gain of 240 businesses each year, Indiana
has lost 14. Indiana's slow slide in nonstore retailers, which
can be seen in Figure 2, is partly due to the decline in the number of
mail-order houses and, because of the break in the time series with this
industry, it is difficult to capture the remainder. On a brighter side,
Indiana has outstripped the nation in the growth of electronic shopping
retailers over the past two years (see Figure 3). The state gained 18
electronic shopping retailers, bringing the total to 68.

Figure 2: Number of Nonstore Retailers in Indiana

Figure 3: Percent Change in Electronic Shopping Establishments

Figure 4 examines nonstore retailers' sales on a per capita basis,
which is a way of comparing sales volume for this industry across counties.
However, these figures do not just reflect the online and mail-order
spending of the county populace because online shopping and mail-orders
can cross county and state lines.

Figure 4: Nonstore Retailers' Per Capita Sales, 2002

The National Retail Federation found that “the average consumer
plans to spend $738.11 this holiday season, up 5.1 percent from the previous
year and while debit cards will be the most popular form of payment this
holiday season, cash will replace credit cards as the second most popular
method of payment.” It isn't too surprising that consumers
were a little more conscious of taking on more debt given that consumers
had a larger debt ratio heading into the holiday season than recent previous
third quarters, plus the expectation of higher gas prices (see Figure
5).